The food truth: Ag policies feeding Europe cheaply while we pay more!

As the cost of food has skyrocketed, my wife and I have gotten pretty good at stretching our budget to the breaking point. We've cut back on our restaurant visits, joined a CSA for fresh vegetables, found the cheapest markets in our area, begun using the dollar store as a source for canned foods, and started taking a weekly trip to Trader Joe's.

Consequently, we've managed to eat as well, or better, than we did when food prices were lower; still, there are some areas where we can't cut back. For example, over the past year, the orange juice that my wife and daughter drink has gone up from $2.50 per half gallon to $3.99. On some days, I'm still able to get it at $6 for two half gallons, and I recently saw it at $5 for two, but these surprises have become few and far between.

We've all heard the numbers, but it's still worth noting that, according to the last Consumer Price Index report, Grade A eggs are up 40% over last year's prices. Cheddar cheese has risen 14%, dried beans have gone up 25%, and white potatoes have risen 11%. This has been happening for a couple of years: between 2006 and 2007, the Consumer Price Index for food rose by 4%. At the time, this was the largest increase in more than 15 years, but it has risen by a further 6% over the last year and food prices are on track to rise by 7% in 2008. The standard reason for this massive increase is that escalating gas prices have made it more expensive to transport food. While this is true, it is only a small part of the story.

The lion's share of the food inflation has been caused by the weak dollar. In addition to reducing our buying capacity, America's under-performing currency has also made domestic foodstuffs very attractive to overseas markets. This year, U.S. food exports are expected to top $110 billion, which represents a 22% increase in one year. This has been a major boom for agribusiness, but it has definitely taken a bite out of consumers, who are now competing with wealthier European markets for certain key staples. Meanwhile, European produce, which has traditionally helped offset food prices, has become much too expensive for America's markets.

At the same time, biodiesel and ethanol production have taken a huge chunk out of America's most ubiquitous grain, corn. This, in turn, has upped the price of animal feed, which has driven up the price of most meats. Simultaneously, corn's position as an additive in pretty much every processed food on the market means that the cost of everything from cereal to cola has either risen or is poised to rise.

While there isn't a whole lot that we can, or should, do to reduce overseas demand for American produce, it is probably time to reconsider the U.S.'s gargantuan agricultural subsidies.

In addition to guaranteeing a price floor for key crops, we are also paying extra money for crop production; in the last two years, this has translated into a $36 billion payout to corn farmers. The traditional argument for subsidies is that they protect small, helpless American farmers from big, nasty foreign competition. In reality, however, by guaranteeing a minimum profit, they've enabled large Agribusinesses to dominate American agriculture, push out small family farmers, undercut Mexican farmers, and produce cheap crops that are very attractive to overseas consumers.

This is where the equation comes full circle. The subsidies that come from American taxes ensure that American produce stays cheap. This, in turn, makes it attractive to foreign consumers, whose demand drives up the price. The final step is that American consumers end up paying taxes to fund food that they cannot afford to buy. In addition to reducing overseas demand, cutting agricultural subsidies would help my paycheck stretch a lot further at the supermarket!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He's wondering if he can convince the federal government that his potted geranium is, actually, a family farm...